What Happens Before and After Foreclosure?

Between 2008 and today, there have been over 3 million completed foreclosures in the United States. We can blame Wall Street, Sub Prime Lenders, the government, the price of tea in China, or fill in the blank with the group of the day. While people do lose their homes for reasons beyond their control, like an illness or death, most people lost their homes for one reason. They took on more than they could afford with no equity to help them when prices dropped. Unfortunately, my family got to see what happens during and after a foreclosure when they had that experience a little over two years ago.

Spending More Than You Make

We have some very close family members who were making decent money back before the great recession. Like us back in the day, they spend just about everything they made on a variety of things they thought they needed or wanted. While their jobs were certainly tied to how well the economy was doing at the time, they never set anything aside for a rainy day. They also rolled several lines of credit into a big mortgage payment. They were making enough to afford, so why not?

Rainy Days

Turns out the rainy day came. Both of our family members lost jobs around the same time when the economy collapsed. Long story short, a couple in their 60’s lost their home to foreclosure.

They were luckier than many because they had a friend of a friend with a rental who agreed to let them live there. They were able to afford it on social security. Foreclosure ruins your credit rating. Without a connection, it would have been hard to find a rental, and they would have been forced to move in with family.

Silver Lining

At first, they were pretty angry about the whole situation, but with time, I’ve seen some very positive changes. They are living within their means by forced frugality. They have no credit. It is a bare bones lifestyle, but they have a home, food, clothes, and and a pretty old vehicle. If they do become very ill or disabled, with no assets, they will be eligible for Medicaid if they have to go into a nursing home. No frills for sure, but it could be worse.

What to do if You Find Yourself in a Similar Situation

Avoid the Situation– The absolute worst thing my family did was not ever plan for worst case scenario. Without some emergency fund savings, this could happen to anyone.

Don’t put Unsecured Debt into a Secured Asset-Think twice before you put credit card debt into a home equity loan or mortgage. If my family had stopped paying their credit card bills, they would have trashed their credit and gotten lots of collection calls, but they would have kept their home.

Pay Off the Mortgage-You never know what might happen as you get older. For me, I would never go into my 60’s with primary mortgage debt. Pay that sucker off!

Get Rid of the House– If you know you can’t make it work, try to short sale the house. My family kept trying to hang on and threw what money they did have into trying to save it. We debated trying to give them money, but decided against it. They did get a loan from another family member, but it was too little too late. If they could have gotten a short sale or even walked away, they would have had a little money to have some breathing room for a new start.

Make the Best of It-Unless you are hungry and living on the streets, things could be worse. My family isn’t able to continue in the lifestyle they were used to, but they have basics and family that loves them. I believe they are now getting to the point where they realize how lucky they actually are. It does no good to replay past mistakes and wonder what if. I hope no one reading this ever has to go through a foreclosure, but if it happens, you can pick up the pieces and start again.

I don’t understand how people can take advantage of their family and borrow money and never pay it back!

My husband and I have had to borrow money from family, but we always write up and sign an agreement and pay it back exactly as we specify! Although, we once had to borrow a significant amount from his grandparents to pay off a 401k loan (I know, young and stupid) after I left my job to avoid the taxes. We had a home for sale and when it sold, they were the first to get their money…they were absolutely shocked to get their money back…they had been burned by family too apparently. Sad…

I would not be able to sleep if I didn’t pay it back, but most people I’ve know who loaned money or co-signed for a family member got burned. If I ever did give money, I’d probably consider it a gift and be happy if it got paid back.

Sorry to hear about the situation with your in-laws. It’s difficult because you never expect income to dry up, but it’s always a possibility. It’s crazy how many foreclosures there have been, and for how long it has been going on. I heard that within the next couple years people who foreclosed will actually be getting back into the housing market because their credit will be restored (or the foreclosure will have less of an impact or will not show up in their report).

btw the length of the post is not an issue, didn’t seem overly long to me.

Thanks, DC. I get going and can’t shut up sometimes. I think lots of younger people can come out of foreclosure hopefully with better habits. I love owing a home and would hate not to be able too. My inlaws just don’t have enough time to buy again, at least I hope they wouldn’t take a mortgage in their 70’s.

I think you were right not to lend your in laws some money. Money wouldn’t have fixed the situation, only extended the inevitable. It was probably harder to sit and watch, but better for everyone involved. (you financially, and other benefits for your in laws)

Tough love is a difficult business but much better then enabling poor decisions.

My hubby experienced some tough love when he was asked to leave home at 18. He was making some really poor life decisions and his mother didn’t want to watch, nor subsidize these choices. At the time he was really upset, but now (12 years later) he can see how beneficial it was that his mom took a tough line. He has blogged about it at if you’re interested.
It’s sad to think about people so late in life struggling to make ends meet, but it sounds like they are starting to realign some value and priorities.

What a sad, but in some ways (the way they responded), positive story. My only experience with foreclosure is on the other side. I’ve had friends who go in and scoop up foreclosed houses for peanuts and resell them.

Someone bought and sold their house within a few months of the foreclosure. It was in pretty decent shape with the remodeling they did, and they didn’t trash it like lots of folks going into foreclosure.

Their story is a pretty common one in our area, and I’m glad that they seem to have learned a lot from the experience. I hope we keep these lessons as a communal memory to prevent something like this from happening again, but it seems like people are starting to get stupid and irrational about real estate all over again… *Sigh* Maybe if there’s another RE bust down here we can buy some more foreclosures.

That’s kind of how we found out. They were treading water, so we thought. Then we get the call that they have to be out in 2 weeks. Luckily, they found the rental they are in now. I’m not sure I could take them in, but would if we’d had to. You wouldn’t put them on the street.

The troubled economy in the US destroyed so many people’s lifestyles. I saw shows on TV of real estate tycoons that lost everything. I believe we all need to save for a rainy day, but when the money is free flowing many of us forget that. I am very sorry to hear about what happened to your in-laws.

I sometimes wonder if the dreadful drop in the economy over the past 4 years is what has helped so many younger folks (20’s and 30’s) to be so financially conscience. Having witnessed so many foreclosures and bankruptcies seems to have encouraged the younger crowd to really pay attention to their spending.

I don’t know how it couldn’t affect young people in some way. Obviously my husband and his sister were not at home for this event, but many families with small children have gone through foreclosure. Hopefully, it will make a generation of savers, like the people who lived through the Great Depression.

Sad story. Sadder that its someone close to you. 🙁 Doesn’t Medicare only cover up to 100 days of nursing care related to hospital stay? What is she going to do if she lives to 80+? Have they thought about who is going to cover nursing home care?

You can get Medicaid, which is a state program for very poor people. Adults have to be disabled or blind, unless you are pregnant and have small kids. So if they became disabled, they could go on state aid, which covers nursing home care in “designated facilities” Probably not the nicest facilities, but it’s better than nothing. My father-in-law has veteran’s benefits as well, but I believe space in a home would be limited. We’ll have to cross that bridge when we come to it, I guess.

Kim, isn’t it amazing that it was so easy to see the writing on the wall? It is like some people just don’t understand the basics of income and expenses. My parents have been floating along for years, I dread the day when they come to me for help. It isn’t that I wouldn’t help them it is that I have to then sell it to my wife lol

Wow, that’s scary and probably the reason that Mrs.CBB and I work so hard at saving money. I’m sorry to hear about your inlaws situation and you are right we need to stop spending so much money and put our security first before all this pleasure. Now that we know that our mortgage is paid off we are able to sleep better at night. I can’t imagine having debts hanging over our heads that are so far out of reach that if an emergency occurred we wouldn’t know what to do. An emergency plan is always optimal in these situations. Great post. Mr.CBB

That must be a huge relief to know that you own your house and no matter what, you will still own it. I hate to think about the worst thing that could happen, and I always assume I will be able to bring in money, but you honestly never, ever can know for sure.

Not wrapping unsecured debt into secured is so important. I really wish there was more financial education about these types of situations so more people don’t end up in the same situation. Hope they come out ok!

I think it’s extremely difficult to do, but I wouldn’t have given money to them. By giving them money you would be supporting their behaviors and decisions that brought them to that point, therefore I think it was good that you didn’t.

I’ve personally never dealt with foreclosure but have coached clients through it and have an in-law that also experienced it. It can be a great learning experience and it’s great to hear that your in-laws learned some lessons.

Also, love the point about not rolling in unsecured debt into a secured asset. Such a no-no but so commonly done!

I agree what a sad reality. Thank you for sharing though. That situation is my worst fear. I try to remember that I need to save now in my younger years while I am able. Never know how things might change.

I’m all too familiar with this post but I’ll take just a little exception with the statement that most people went into foreclosure because “They took on more than they could afford with no equity to help them when prices dropped.”

Too simplistic and as a long time Real Estate and credit Professional, this space is way to short for me to elaborate 🙂 As for lending money to family? Thanks to my foolish move to help a family member, I lost over $200k that combined with the market forces, sent me into a 4-5 year journey through credit and financial hell! I still have over $45k out in the street that I will never recover!

As you’ll read in my blog post; it is what it is – but will become what I make of it! The same will be true with your in-laws God willing! Thanks for sharing.

Lou, thanks for pointing out exceptions. In the case of my inlaws, they’d been in the house for over 20 years and it the remaining mortgage could have been refinanced to a low payment, but they rolled all the other debt in there, giving them a huge payment and no savings. Recipe for disaster.

Lou, thanks for pointing out exceptions. In the case of my inlaws, they’d been in the house for over 20 years and it the remaining mortgage could have been refinanced to a low payment, but they rolled all the other debt in there, giving them a huge payment and no savings. Recipe for disaster.

Thanks for sharing. I’ve always wondered how the process works but its sad to see parents/in laws affected like this. Hopefully we can learn from lifestyles like this but I also know some people just don’t save, sadly.

This is a great post- thank you so much for sharing. No, I don’t think you should have given them money – they’ve only learned better habits because they had to. I think if they’d been out on the street, you’d have done something, but some folks need to hit rock bottom before they can start again.

Absolutely. You can talk until you’re blue in the face, but people have to learn for themselves. You hope it’s before you lose a house or declare bankruptcy, but sometimes it takes a huge reality check to change bad habits.

I don’t think you should have given them money either. The lesson they learned will be incredibly valuable. People need to realise that there are always people worse off and they are not the first (and certainly wont be the last) to go through this. They can always start again and (hopefully) this time plan for things that could go wrong..

What a sad story. I wouldn’t lend them money though, or consider it a gift that you will never see again. It can really ruin a relationship. I would lend money in case of sickness or a real emergency, and maybe pay for family reunions so they can come and participate. It looks like they are living frugally but making ends meet.

That’s really unfortunate that people learn from their mistakes. We really shouldn’t consider some loan or mortgage as an asset because it is still a liability unless you pay it in full. Maybe your in-laws doesn’t know about short sale that time so they weren’t able to do it. Hopefully this post will reach a lot of homeowners who are under mortgage or foreclosure but especially does first time buyer so they learn from the mistakes of others.

This unfortunate circumstance that happened to your in-laws is a all too familiar story for many families. I was just reading how some of the banks are a bit more open now to negotiate with homeowners who face foreclosure but so many people purchased homes that were well above their means and income level that the banks can only do so much. It sounds like your in-laws have kept a positive attitude throughout this ordeal.

Great read. Scary because I recognize myself in them. 20 years younger, but same mistakes. Struggling, but still have the house so far. Have learned the lessons — believe me! I have learned them as of about 4 years ago. Problem is that our family company is flatlining and I can’t get a leg up to actually start saving. At the same time. I’m paying what I can and facing all the bills that are the consequences of past bad decisions. Even bankruptcy isnt a good option because majority of our debt is in our house of which we are under water. So I see the problem. Take responsibility. And am afraid time will run out before we can fix it. I guess that’s where faith and hard work come in.

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